Feds Daly on CNBC
- Saying that we needed to 2 hikes was a way to keep optionality open
- The good news on inflation this week is indeed good news
- To early to say we can declare victory on inflation
- Lags in monetary policy is 12 – 24 months
- There is still cumulative effects of monetary tightening to work its way through the system
- Thought that the banking crisis could be worth 1 to 2 tightenings, but not seeing that impact
- Am mindful that we still have an economy that has a lot of momentum
- We are going to continue to work on rate hikes until we are sure that inflation is on the path to come back down toward 2%
- There is a risk that we over-tighten and a risk that we under-tighten. That is why we are data dependent
- Hard to say wage growth is going to lead inflation down
- Was not aware of problems at Silicon Valley Bank
- If wait until inflation is 2% and have monetary lags, you want to head to a less restrictive policy to adjust for the lags.
- As inflation starts coming down, can start lowering the nominal rate to bring real rates down to neutral levels
- Wants to start heading towards the neutral rate as we approach 2% on inflation
- We are not there yet.
- The standing pad at the June meeting is about slowing the pace of hiking as we start to reach our destination
- A way to slow the path is to skip a meeting
- We don’t know a lot of things. WHat is happening to inflation? What are the credit risk? What are the lags?
- The market might be really focused on the CPI yesterday. I have more optionality. Fed should not be declarative.
The interview was wide-ranging but Daly did walk back some of her hawkishness of her 2 more rate hikes comment a few days ago, saying that the keyword is keeping optionality open. She did imply that lowering rates could come before 2% target but still wants to be sure the path is to the downside.